“One of the outcomes of this arrangement is that licensees, not advisers, receive payment from product providers for the work done by advisers, who then pass the payment onto adviser – often in their own good time,” he said.

But more importantly, the results can be disastrous in cases where a licensee is placed into liquidation, because their advisers have to compete with other creditors for the payment of their services.

The submission gives the example of the collapse of Australian Financial Services in 2013, which resulted in losses to advisers of a reported $1.5 million. In another case, advisers reportedly lost $300,000 after the collapse of AAA Financial Intelligence.

Brad Fox, the CEO of the Association of Financial Advisers (AFA), said the issue is certainly valid.

“In those rare situations where a licensee collapses, the AFA shares the concern that the entitlements and earnings of advisers need to be appropriately protected, and experience has shown that the current practices fail to achieve this.”

In the event of a licensee failing, advisers within the group face an enormous amount of uncertainty about their personal future, and being deprived of entitled income causes an unreasonable amount of hardship, Fox said.

Lander & Rogers’ partner Ruth Stringer said she believes that the law can be amended without disturbing the consumer protection provided by the Act for clients.